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One product produced and sold by Backstroms Backyard Products is a water fountain for which 2019 projections are as follows: Projected volume in units 100,000
One product produced and sold by Backstroms Backyard Products is a water fountain for which 2019 projections are as follows:
Projected volume in units 100,000
Sales price per unit $75
Variable production cost per unit $30
Variable selling cost per unit $15
Fixed production cost $800,000
Fixed selling and administration costs $400,000
- Compute the projected pretax profit to be earned on the water fountains in 2019. (Pretax profit will be 1,800,000 show your work.)
- Management estimated that unit volume could be increased by 25% if the sales price was cut by 15%. How would such a change affect the profit level projected in (a) above. (Provide the pretax profit and explain the change.)
- Rather than cutting the sales price, management is considering holding the sales price at the projected level and increasing advertising by $185,000. Such a change would increase volume by 30%. How would the level of profit under this alternative compare to the profit projected in (a). (Provide the pretax profit and explain the change. )
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